commerce essay

The Need For International Marketing Management Commerce Essay

Published: 23, March 2015

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When an organisation decides to enter into a foreign market, it is very important for the company to adopt a strategy to enter in to the market. The first few months are very important to achieve the goals and objective of the company. There are many ways to enter into the market. It depends upon the cost, risk and the control of the company on the investment. The simplest and commonly used entry strategy is exporting by using either direct approach as an agent or indirect approach as counter trade.

Market Entry Strategy:

There are many ways to enter in to a foreign market. The most commonly used ways are as follows

Exporting

Licensing

Joint Ventures

Joint Ownership

Direct Investment

Exporting:

Exporting is the most traditionally used and well established way of entering into a foreign market. it can be defined as the marketing of goods produced in one country into another. It is very easy because the company can use the domestic labour to produce goods and then sell it into another country. The success of this strategy requires the understanding of need and wants of the locals, and then effectively market the product.

The main advantage of exporting is that the company does not require of the services of the local people, thus the process is more standardised. If the company can't find enough consumers for the product, than they look into other markets, to increase the profitabilty of the organisation.

(http://www.answers.com/topic/exporting)

Licensing:

Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor".

It is quite similar to the franchise operation. Coca Cola is an excellent example of licensing, because it has given licenses to different companies in the world to make coca cola. Licensing requires very little cost and involvement, thus it is a very common business practice.

Joint ventures:

Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". Joint ventures are a more extensive form of participation than either exporting or licensing.

"Entering a foreign market by developing foreign-based assembly or manufacturing facilities is called direct investment".

Direct investment is commonly used by large companies. Those companies which have gained significant local market aim to increase their profitability by investing into the foreign market. Company which have ample financial resources can also open production and manufacturing plants in the host country. There are many advantages of opening a manufacturing facility in the host country which are as follows:

It can reduce the cost by purchasing cheap raw material and labour.

Companies are often given foreign government investment incentives by the host countries.

The company can have a good reputation in the country but it creates jobs.

The company develops a good relationship with the consumers, suppliers, distributors and government.

The company can easily identify the needs and wants of the local people and thus change its product accordingly

The company can have full control the investment. Thus it can change its policies that can serve it long term international objectives.

Types of Firms:

The different types of firms are as follows:

Large companies:

The companies which have a large number of human resource and production facikty comes under the category of large company. These companies can be domestic based or multinational organisations or MNC. MNC's carry out their activities in the foreign countries to generate profits. Normally MNC's have their head office in one country, but their activities are across the border.

In large companies, all the entry strategies can be used. Because large companies have ample human and financial resources, they can easily adapt themselves to the market condition.

Small and medium sized enterprise (SME):

SME's are the companies where the number of employees falls below a certain limit. The definition of SME is different in other countries. E.g. in EU, the definition of SME is that the companies where the number of employees is less than 10 are called "micro", those with less than 50 employees as called "small", and those with less than 250 as "medium".

But in the United States, the companies with less than 100 employees are called small enterprises and those with less than 500 employees are called medium sized enterprises.

SME should go for joint venture into the foreign market because they don't have ample resources and local knowledge. The best way to enter is to take services from a local company.

(www.answers.com)

Manufacturing firms:

Those companies which produces physical goods are called manufacturing companies. These companies are production based which utilise the machines, tools and human resource to produce products. Usually manufacturing firms require a huge space to carry out their activities.

If the Manufacturing firm is a large organisation then it can adopt any strategy as long it is cost effective.

Service based firms:

The companies which sell services rather than the physical goods are called service based companies. The service based firms are as important as the manufacturing companies. Service based firms include telecom companies, call centres, insurance companies, banking sector etc.

These firms usually go for joint venture with the local firm. They use the local knowledge of the local firms to increase the profitability.

Risks faced by the Company:

When a company try's to invest in the market, it is faced by different types of risks, which are as follows:

Financial risk:

The risk that is associated with the finances of the organisation is called financial risk. All the organisations are faced with risk in one form or another. In finacial sector, the financial risk can be defined as the risk of getting actual return less than the expected return.

Companies invest in different portfolio to minimize the financial risk associated with the investment. But the return on investment depends upon the risk associated with it. If an has high risk associated with it, than return will also be very high.

Political risk:

Political risk is the kind of risk which are faced by organisations when they aim to invest into the market. This type of risk is usually associated by the political decisions made by the governments.

Any organisation that wants to increase and sustain the growth, the government stability is very important. if the political environment of the country is not stable, than the companies are faced by a lot of hurdles.

Economic risk:

This type of risk deals with the economy of the country. When a company invests in the foreign market, its target could severely be hit by the economic conditions of the local market, specially with the change in the currency rate. If the country has an unstable economy, it could affect the buying power of the people. Thus it could affect the demand for product.

Factors that affect the Consumer Behaviour:

Cultural factors:

Cultural factors have a great impact on the buying behaviour of the consumers. Thus the marketer needs to understand the role played by the buyer's culture, subculture and social class.

Culture: culture of a country is the most important factor that affect the buying decision of the consumer. It is very important for an organisation to understand the culture of the country before investing there. Every group or society has a unique culture and it can influence the overall perception of the society. E.g different countries assign different meanings to the colours. White colous is assosiated with purity and cleanliness in western countries where as it is assosiated with death in certain Asian countries.

Subculture: it is a group of people with shared value systems based on common life experiences and situations. Subcultures include nationalities, religions, racial groups and geographic regions.

Social class: it is relatively permanent and ordered divisions in a society whose members share similar values, interests and behaviours. It is determined by factors such as income, occupation, education, wealth and other variables.

Working and business practices:

If a company wants to invest in a foreign country than its very important to understand the business practices in the concerned country. the business practices followed by the asian companies is a little different than the companies in the western world. Specially in the banking industry, some of the Muslim countries prefer the Islamic banking system. Thus while investing in this sector, the investor needs to understand social and religious values of the population.

Cultural distance:

In order to invest in a foreign market, the researcher needs to understand the cultural difference between the home market and the foreign market. culture of the country plays an integral part in the buying pattern of the consumers. In garments industry, the western cloths might not be that much acceptable in other asian and African countries because of the religious and social differences.

Geographic distance:

The geographic distance also plays an important part in choosing the foreign market for investment. If the target market is closer to the domestic market, the profits can be increased by reducing the transportation cost. Thus the same capital can be utilised to market the product to the masses.

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